Yesterday's lethargic session was rather uneventful, as stocks drifted sideways throughout the entire session before finishing modestly positive. Both the S&P 500 and Nasdaq Composite gained 0.2%, while the Dow Jones Industrial Average edged less than 0.1% higher. The small-cap Russell 2000 rallied 0.4%, but the S&P Midcap 400 was unchanged. Volatility was the lightest we have seen in several months, as the intraday trading range of the S&P 500 was just 6 points. The Dow oscillated in a range of only 60 points.

As is usually the case during low-volatility sessions, volume eased across the board. Total volume in the NYSE declined 12%, while volume in the Nasdaq came in 8% lower than the previous day's level. The overall NYSE turnover was its lightest in more than a month, a testament to the "wait and see" attitude that institutions have assumed right now. Total volume in both the NYSE and Nasdaq has only exceeded its 50-day average levels twice within the past seven weeks. Nevertheless, the Nasdaq has still registered two higher volume days of selling this week. This gives recent volume patterns a slightly negative slant.

The StreetTRACKS Gold Trust (GLD) was among the best ETF performers yesterday. We initially pointed out GLD after it began to correct from its high a few days ago. Yesterday morning, it gapped down to test support of its 20-day EMA. As we often see in strongly trending ETFs and stocks, buyers stepped in at support of the 20-day EMA, triggering a strong intraday reversal. This is shown on the daily chart of GLD below:



Although it gapped down from its high just three days ago, it appears that GLD may already be setting up to resume its strong primary uptrend that began in late August. Ideally, we would prefer to see it consolidate on its hourly chart a bit longer before breaking out. A more lengthy base of support here would enable the 50-day MA to rise close to the price of GLD, decreasing the likelihood of a subsequent breakout to new highs failing to hold. If GLD moves sideways throughout next week, it would enable a more clearly defined hourly downtrend line to form. We would then plan to buy a breakout above that short-term downtrend line. You may also want to keep the Market Vectors Gold Miners ETF (GDX) on your watchlist, as it has formed a similar pattern to GLD.

PowerShares Clean Energy (PBW), comprised of a basket of companies relating to the production of alternative energy, has begun consolidating near its prior high. Relative strength within the solar energy sector has been a dominant factor in the strength of PBW. If it breaks out, the move to a new all-time high could carry a lot of upside momentum. We bought PBW when it broke out on September 18, then sold for a substantial gain last week. Now that it has proven its relative strength, it may soon be time to re-enter PBW on a breakout to a new high or pullback to its 20-day EMA:



As for the broad market, yesterday's quiet action did not change the current technical picture. Most of the major indices had "inside days," meaning their intraday trading ranges were completely contained within their previous day's trading ranges. When this occurs, the volatility contraction merely represents a tight day of consolidation.

As we illustrated yesterday, the Dow must hold support of its October 3 low, or it will be in danger of failing its recent breakout to a new all-time high. The Nasdaq is further above support of its breakout, but it too needs to hold the October 3 low. As long as the major indices hold above their October 3 lows, the lengthy hourly uptrend lines could continue to provide support for another leg higher. However, momentum could quickly reverse with just the slightest bit of selling pressure. Being positioned on both sides of the market right now is not a bad idea, as it will help to hedge your bets in the event of a sudden volatility expansion in either direction. If a definitive break is made, you can quickly cut your positions on the wrong side of the market, while riding the gains with the others.

Open ETF positions:

Long - LQD, SKF, DUG
Short - (none)

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and Morpheus Trading Group, a trader education firm launched in 2001 that provides daily technical analysis of the leading ETFs and stocks. For a free trial to the full version of The Wagner Daily or to learn about Wagner's other services, visit MorpheusTrading.com or send an e-mail to deron@morpheustrading.com.